17 September 2003 External T.I. 2003-0028885 - commissions earned in professional corp.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether mutual fund salesperson could report their commissions through their corporation

Position: Question of fact.

Reasons: It must be determined whether the individual or the corporation is carrying on business. If the individual is legally precluded from operating through a corporation, then he or she must report the commissions personally.

2003-002888
XXXXXXXXXX Wayne Antle, CGA
(613) 957-2102
September 18, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Professional Corporations

This is further to your facsimile of July 10, 2003, and our telephone conversation (Antle/XXXXXXXXXX) on September 16, 2003, concerning whether individuals earning commission income from the sale of mutual funds could report this income through their corporations.

In order to determine who should properly report the mutual fund commissions, it must be ascertained whether the individual or the corporation is carrying on the mutual fund sales business. As noted in paragraph 1 of Interpretation Bulletin IT-189R2 Corporations Used by Practising Members of Professions, a corporation may be recognized as carrying on a profession unless provincial law or the regulatory body for the profession provides that only individuals may carry on such a business.

We clarified our position with respect to insurance agents, mutual fund salespersons, realtors, and other professionals at the 2001 Canadian Tax Foundation-CCRA Round Table discussions, which are reproduced in Income Tax Technical News 22 ("ITTN 22"). In response to Question 1 on the topic, Commission Income Transferred to a Corporation, we stated that where such individuals are legally precluded, either by statute or contractually, from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and not their corporations.

Where there is no legal restriction on the transfer of commissions to a corporation, then all of the relevant facts must be reviewed in order to determine whether the individuals, or their corporations are carrying on the mutual fund sales business. A corporation will be recognized as carrying on the business if the activities, and the relationship it has with its employees and clients, are similar to those ordinarily associated with a corporation carrying on business. Please refer to IT-189R2 for examples of such activities.

We have enclosed a copy of IT-189R2 and ITTN 22 for your reference.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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